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Kanen Wealth Management LLC, Writes Letter to ODP Board Urging Them to do $536 mill Stock Buyback Over Next 2 Years

ACCESSWIRE

CORAL SPRINGS, FL / ACCESSWIRE / March 22, 2018 / KWM KANEN WEALTH MANAGEMENT, LLC, Letter to ODP Board.

Dear Office Depot (ODP) Board of Directors and Executive Management,

Since March 23rd, 2015 until today your stock has declined from $9.30 to $2.28, a 75% 3-year decline (see figure 1). While we cannot change the past, the choices we make today and over the next several years will affect the future.

Per your Q4 2017 earnings call, our recommendation to the board and management is based on your guidance of:

  • $325 million in FCF for 2018

  • "Growth" in 2019

Based on your statements, ODP shares have a FCF yield of 25% on a current equity value of $1,267 million (net debt stands at < 1x FCF). If management believes in its own statements about FCF and "growth" then they should be aggressively buying their own stock to the tune of $268 million per year (equal to $325 million in FCF less $57 million dividend). If the company was to accomplish the aforementioned at an average price of $3.15 per share (~38% higher than the current stock price) over the next two years our share count would shrink from 570 million to 400 million shares. In turn, our dividend per share would increase from $0.10 per share to $0.14 per share (while maintaining a $57 million annual payout), a 40% increase!

Furthermore, our FCF per share would increase from $0.57 per share to $0.81 per share, a 43% increase before any effect of "growth" you may have in 2019 (see table 1). In light of the awful performance of your stock during the last 36 months and the fact that our recommendation is a low risk predictable strategy. We exhort you to take action immediately. We appreciate the hard work of your many dedicated employees, and we look forward to an expeditious, satisfactory response.

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Sincerely,

Dave Kanen President, Portfolio Manager
Kanen Wealth Management, LLC
Philotimo Fund, L.P.
P: (631) 863-3100
E: dkanen@kanenadvisory.com Kanen

Wealth Management, LLC
Philotimo Fund, L.P.
5850 Coral Ridge Drive Suite 309 Coral Springs, FL 33076
P: (631) 863-3100 F: (631) 863-3103
W: KanenWealthManagement.com

SOURCE: Kanen Wealth Management, LLC